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3 useful contract clauses as you start a new business partnership

On Behalf of | Dec 13, 2022 | Business law

Starting a business partnership means sharing the risk and work involved in developing a company. It also potentially means establishing a long-term professional relationship with your business partner.

The actions that either of you chooses to take or fails to take during your partnership could make a big difference to your company’s long-term prospects. Rather than simply trusting that your partner will always make the right choice, it is typically wise to protect yourself legally by drafting a thorough partnership agreement.

What kind of clauses can you include in an agreement to better protect yourself?

  1. Dispute resolution clauses

When you are in the early stages of your partnership, your business relationship will be positive and strong. After years of working together, the two of you may be more prone to an adversarial approach to business challenges where you argue over every major decision.

Having rules in place related to how the two of you will resolve significant business disputes can prevent issues related to your decision-making authority from derailing business operations. You may even want to indicate who has the final say in different areas of business operations.

  1. Clear end-of-partnership rules

Perhaps your goal is to develop the company into a profitable entity and then sell the organization to split the proceeds. Maybe you want to start the business together, but one of you will likely retire long before the other does.

Provided that the business succeeds, you want to have clear rules outlined in your agreement for how the two of you will dissolve your partnership, potentially well keeping the business itself operational. You also want to discuss how you will split debts incurred on behalf of the company.

  1. Explanations of contributions and obligations

From how much each of you will receive in regular pay to how you will handle profit sharing, it is crucial that the two of you agree on how you will distribute the proceeds from your company’s operations.

You also need to have a clear understanding of what each of you will do to contribute to the company, from how many hours a week you may work and what role you may perform to what kind of financial investment each of you will make in the business.

The more thorough you are as you explore your expectations for one another and what you intend to do for the company, the easier it will be for you to maintain a positive relationship, which will benefit both of you and your business. Including the right details in your business partnership agreement will help you start your company with the best protection possible.